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10-Q

BTCS Inc. (BTCS)

10-Q 2021-11-09 For: 2021-09-30
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Added on April 12, 2026
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UNITED

STATES

SECURITIES

AND EXCHANGE COMMISSION

Washington,

D.C. 20549

Form

10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Forthe quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For

the transition period from _______________ to _______________.

Commission

file number: 001-40792

BTCSInc.

(Exact name of registrant as specified in its charter)

Nevada 90-1096644
(State<br> or other jurisdiction of<br><br> <br>incorporation<br> or organization) (I.R.S.<br> Employer<br><br> <br>Identification<br> No.)
9466 Georgia Avenue #124<br><br> <br>Silver Spring, MD 20910
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(Address<br> of principal executive offices) (Zip<br> Code)

Registrant’s

telephone number, including area code: (202) 430-6576

Securities

registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common<br> Stock, par value $0.001 BTCS The<br> Nasdaq Stock Market<br><br> <br>(The<br> Nasdaq Capital Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large<br> accelerated filer ☐ Accelerated<br> filer ☐
Non-accelerated<br> filer ☒ Smaller<br> reporting company ☒
Emerging<br> growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate

the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 4, 2021, there were 10,275,258 shares of common stock, par value $0.001, issued and outstanding.

BTCS

INC.

TABLE

OF CONTENTS

Page
PART I - FINANCIAL INFORMATION
ITEM<br> 1 Financial Statements 4
Condensed Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020 4
Condensed Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (unaudited) 5
Condensed Statements of Changes in Stockholders’ (Deficit) Equity for the three and nine months ended September 30, 2021 and 2020 (unaudited) 6
Condensed Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited) 7
Notes to the Unaudited Condensed Financial Statements 8-21
ITEM<br> 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
ITEM<br> 3 Quantitative and Qualitative Disclosures About Market Risk 28
ITEM<br> 4 Controls and Procedures 28
PART II - OTHER INFORMATION
ITEM<br> 1 Legal Proceedings 29
ITEM<br> 1A Risk Factors 29
ITEM<br> 2 Unregistered Sales of Equity Securities and Use of Proceeds 29
ITEM<br> 3 Defaults Upon Senior Securities 29
ITEM<br> 4 Mine Safety Disclosures 29
ITEM<br> 5 Other Information 29
ITEM<br> 6 Exhibits 29
Signature 30 
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BTCS

INC.

As used in this Quarterly Report on Form 10-Q (this “Quarterly Report”), the terms “we,” “us,” “our,” the “Company,” the “Registrant,” and “BTCS Inc.,” mean BTCS Inc. and its consolidated subsidiaries, unless otherwise indicated.

CAUTIONARY

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report, including in Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements including our liquidity, our beliefs regarding our disclosure on the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, and future business plans. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements are contained in our filings with the SEC, including our Form 10-K for the year ended December 31, 2020 and our Prospectus filed with the SEC on February 16, 2021 and the Prospectus Supplement dated September 14, 2021. Any forward-looking statement made by us speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

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PART

I - FINANCIAL INFORMATION

ITEM1 Financial Statements

BTCS

Inc.

Condensed

Balance Sheets

December<br> 31,
2020
Assets:
Current<br> assets:
Cash 658,931 $ 524,135
Digital<br> assets/currencies 3,159,976 995,652
Prepaid<br> expense 472,389 31,875
Total<br> current assets 4,291,296 1,551,662
Other<br> assets:
Property<br> and equipment, net 4,330 230
Staked<br> digital assets/currencies 8,838,046 -
Total<br> other assets 8,842,376 230
Total<br> Assets 13,133,672 $ 1,551,892
Liabilities<br> and Stockholders’ Equity:
Accounts<br> payable and accrued expense 102,122 $ 26,288
Accrued<br> compensation 1,501 350,376
Convertible<br> notes payable, net 848,685 131,941
Warrant<br> liabilities 3,705,000 -
Total<br> current liabilities 4,657,308 508,605
Stockholders’<br> equity:
Preferred<br> stock; 20,000,000 shares authorized at 0.001 par value: -
Series<br> C-1 Convertible Preferred stock: 0 and 29,414 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively;<br> Liquidation preference 0.001 per share - 29
Series<br> C-2 Convertible Preferred stock: 0 shares issued and outstanding at September 30, 2021 and December 31, 2020; Liquidation preference<br> 0.001 per share - -
Common<br> stock, 97,500,000 shares authorized at 0.001 par value, 10,102,711 and 4,201,035 shares issued and outstanding at September 30,<br> 2021 and December 31, 2020, respectively 10,103 4,201
Additional<br> paid in capital 143,472,733 120,578,944
Accumulated<br> deficit (135,006,472 ) (119,539,887 )
Total<br> stockholders’ equity 8,476,364 1,043,287
Total<br> Liabilities and stockholders’ equity 13,133,672 $ 1,551,892

All values are in US Dollars.

The

accompanying notes are an integral part of these unaudited condensed financial statements.

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BTCS

Inc.

Condensed

Statements of Operations

(Unaudited)

Three<br> Months Ended <br><br>September 30, Nine<br> Months Ended <br><br>September 30,
2021 2020 2021 2020
Revenues
Validator<br> revenue $ 323,376 $ - $ 776,399 $ -
Total<br> revenues 323,376 - 776,399 -
Cost<br> of revenues
Validator<br> expense 71,690 - 145,935 -
Gross<br> profit 251,686 - 630,464 -
Operating<br> expenses:
General<br> and administrative $ 282,558 $ 650,049 $ 1,149,506 $ 935,118
Research<br> and development 273,909 - 602,178 -
Compensation<br> and related expenses 4,747,106 228,540 13,788,556 469,935
Marketing 7,559 1,365 10,345 5,420
Total<br> operating expenses 5,311,132 879,954 15,550,585 1,410,473
Other<br> (expenses) income:
Interest<br> expense (58,521 ) (96,068 ) (172,603 ) (35,289 )
Amortization<br> on debt discount (581,973 ) - (1,716,744 ) (186,199 )
Change<br> in fair value of warrant liabilities 2,066,250 - 2,066,250 -
Impairment<br> loss on digital assets/currencies (208,647 ) (29,302 ) (3,777,785 ) (162,254 )
Realized<br> gains (loss) on digital asset/currency transactions - - 3,054,418 (1,682 )
Total<br> other income (expenses) 1,217,109 (125,370 ) (546,464 ) (385,424 )
Net<br> loss $ (3,842,337 ) $ (1,005,324 ) $ (15,466,585 ) $ (1,795,897 )
Deemed<br> dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock (13,188 ) - (45,541 ) -
Deemed<br> dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock - - (5,020,883 ) -
Net<br> loss attributable to common stockholders $ (3,855,525 ) $ (1,005,324 ) $ (20,533,009 ) $ (1,795,897 )
Net<br> loss per share attributable to common stockholders, basic and diluted $ (0.59 ) $ (0.33 ) $ (3.63 ) $ (0.66 )
Weighted<br> average number of common shares outstanding, basic and diluted 6,518,645 3,083,246 5,660,966 2,700,947

The

accompanying notes are an integral part of these unaudited condensed financial statements.

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BTCS

Inc.

Statements

of Changes in Stockholders’ (Deficit) Equity

(Unaudited)

For

the Three Months Ended September 30, 2021

Series<br> C-1 Convertible Series<br> C-2 Convertible Additional Total<br> Stockholders’
Preferred<br> Stock Preferred<br> Stock Common<br> Stock Paid-in Accumulated Equity
Shares Amount Shares Amount Shares Amount Capital Deficit (Deficit)
Balance<br> June 30, 2021 - $ - 1,100,000 $ 6,203,101 5,712,215 $ 5,712 $ 137,959,473 $ (131,164,135 ) $ 13,004,151
Common<br> stock issued including equity commitment fee, net - - - - 32,963 33 199,839 - 199,872
Conversion<br> of convertible notes
Conversion<br> of convertible notes, shares
Beneficial conversion features associated with convertible notes payable
Issuance<br> of common stock, net of offering cost / At-the-market offering - - - - 41,290 41 219,705 - 219,746
Issuance<br> of common stock and warrants for cash, net
Issuance<br> of common stock and warrants for cash, net, shares
Warrant<br> liabilities value related to Issuance of common stock - - - - (5,771,250 ) - (5,771,250 )
Issuance<br> of Series C-2 convertible preferred stock
Issuance<br> of Series C-2 convertible preferred stock, shares
Conversion<br> of Series C-2 Convertible Preferred stock (1,100,000 ) (6,216,289 ) 4,011,766 4,012 6,212,277 - -
Deemed<br> dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock - - - 13,188 - - (13,188 ) - -
Conversion<br> of Series C-1 Convertible Preferred stock
Conversion<br> of Series C-1 Convertible Preferred stock, shares
Beneficial<br> conversion features associated with convertible notes payable
Beneficial<br> conversion feature of Series C-2 convertible preferred stock
Deemed<br> dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock
Deemed<br> dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock
Fractional<br> shares adjusted for reverse split - 14,477 15 (15 ) - -
Warrant<br> exercise
Warrant<br> exercise, shares
Stock-based<br> compensation - - - - 290,000 290 4,665,892 - 4,666,182
Stock-based<br> compensation in connection with issuance of Series C-2 convertible preferred stock
Net<br> loss - - - - - - - (3,842,337 ) (3,842,337 )
Balance<br> September 30, 2021 - $ - - $ - 10,102,711 $ 10,103 $ 143,472,733 $ (135,006,472 ) $ 8,476,364

Forthe Three Months Ended September 30, 2020

Series<br> C-1 Convertible Additional Total<br> Stockholders’
Preferred<br> Stock Common<br> Stock Paid-in Accumulated Equity
Shares Amount Shares Amount Capital Deficit (Deficit)
Balance<br> June 30, 2020 29,414 $ 29 - 2,819,025 $ 2,819 $ 117,834,086 $ (117,774,366 ) $ 62,568
Common<br> stock issued including equity commitment fee, net - - 485,395 485 828,796 - 829,281
Net<br> loss - - - - - - (1,005,324 ) (1,005,324 )
Balance<br> September 30, 2020 29,414 $ 29 - 3,304,420 $ 3,304 $ 118,662,882 $ (118,779,690 ) $ (113,475 )

For

the Nine Months Ended September 30, 2021

Series<br> C-1 Convertible Series<br> C-2 Convertible Additional Total Stockholders’
Preferred<br> Stock Preferred<br> Stock Common<br> Stock Paid-in Accumulated (Deficit)
Shares Amount Shares Amount Shares Amount Capital Deficit Equity
Balance<br> December 31, 2020 29,414 $ 29 - $ - 4,201,035 $ 4,201 $ 120,578,944 $ (119,539,887 ) $ 1,043,287
Common<br> stock issued including equity commitment fee, net - - - - 321,738 322 3,013,683 - 3,014,005
Issuance<br> of common stock, net of offering cost / At-the-market offering - - - - 41,290 41 219,705 - 219,746
Issuance<br> of common stock and warrants for cash, net - - - - 950,000 950 8,864,050 - 8,865,000
Warrant<br> liabilities value related to Issuance of common stock - - - - - - (5,771,250 ) - (5,771,250 )
Issuance<br> of Series C-2 convertible preferred stock - - 1,100,000 1,100,000 - - - - 1,100,000
Conversion<br> of Series C-1 Convertible Preferred stock (29,414 ) (29 ) - - 19,609 20 9 - -
Conversion<br> of Series C-2 Convertible Preferred stock - - (1,100,000 ) (6,216,289 ) 4,011,766 4,012 6,212,277 - -
Beneficial<br> conversion features associated with convertible notes payable - - - - - - 1,000,000 - 1,000,000
Beneficial<br> conversion feature of Series C-2 convertible preferred stock - - - (129,412 ) - - 129,412 - -
Deemed<br> dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock - - - 45,541 - - (45,541 ) - -
Deemed<br> dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock - - - 5,020,883 - - (5,020,883 ) - -
Fractional<br> shares adjusted for reverse split - - 14,477 15 (15 ) - -
Warrant<br> exercise - - - - 200,000 200 399,800 - 400,000
Stock-based<br> compensation - - - - 342,796 342 13,892,542 - 13,892,884
Stock-based<br> compensation in connection with issuance of Series C-2 convertible preferred stock - - - 179,277 - - - - 179,277
Net<br> loss - - - - - - - (15,466,585 ) (15,466,585 )
Balance<br> September 30, 2021 - $ - - $ - 10,102,711 $ 10,103 $ 143,472,733 $ (135,006,472 ) $ 8,476,364

For

the Nine Months Ended September 30, 2020

Series<br> C-1 Convertible Additional Total
Preferred<br> Stock Common<br> Stock Paid-in Accumulated Stockholders’
Shares Amount Shares Amount Capital Deficit Deficit
Balance<br> December 31, 2019 29,414 $ 29 - 1,983,047 $ 1,983 $ 116,798,021 $ (116,983,793 ) $ (183,760 )
Balance 29,414 $ 29 - 1,983,047 $ 1,983 $ 116,798,021 $ (116,983,793 ) $ (183,760 )
Common<br> stock issued including equity commitment fee, net - - 1,180,989 1,181 1,384,313 - 1,385,494
Conversion<br> of convertible notes - - 140,384 140 211,317 - 211,457
Beneficial<br> conversion features associated with convertible notes payable - - - - 269,231 - 269,231
Net<br> loss - - - - - - (1,795,897 ) (1,795,897 )
Balance<br> September 30, 2020 29,414 $ 29 - 3,304,420 $ 3,304 $ 118,662,882 $ (118,779,690 ) $ (113,475 )
Balance 29,414 $ 29 - 3,304,420 $ 3,304 $ 118,662,882 $ (118,779,690 ) $ (113,475 )

The

accompanying notes are an integral part of these unaudited condensed financial statements.

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BTCS

Inc.

Condensed

Statements of Cash Flows

(Unaudited)

2021 2020
For<br> the Nine Months Ended
September<br> 30,
2021 2020
Net<br> Cash flows used from operating activities:
Net<br> loss $ (15,466,585 ) $ (1,795,897 )
Adjustments<br> to reconcile net loss to net cash used in operating activities:
Depreciation<br> expense 443 895
Amortization<br> on debt discount 1,716,744 186,199
Stock-based<br> compensation 13,892,884 -
Stock-based<br> compensation in connection with issuance of Series C-2 convertible preferred stock 179,277
Validator<br> revenue (776,399 ) -
Change<br> in fair value of warrant liabilities (2,066,250 )
Purchase<br> of non-productive digital assets/currencies (5,761,550 ) (808,355 )
Sale<br> of non-productive digital assets/currencies 4,274,491 -
Realized<br> gain on digital assets/currencies transactions (3,054,418 ) -
Impairment<br> loss on digital assets/currencies 3,777,785 162,254
Changes<br> in operating assets and liabilities:
Prepaid<br> expenses and other current assets (440,514 ) (11,466 )
Accounts<br> payable and accrued expenses 168,546 13,015
Accrued<br> compensation (348,875 ) 589,466
Net<br> cash used in operating activities (3,904,421 ) (1,663,889 )
Net<br> cash used in investing activities:
Purchase<br> of productive digital assets/currencies for validating (9,462,279 ) -
Purchase<br> of property and equipment (4,543 ) -
Net<br> cash used in investing activities (9,466,822 ) -
Net<br> cash provided by financing activities:
Proceeds<br> from short term loan - 500,000
Proceeds<br> from exercise of warrants 400,000 -
Proceeds<br> from issuance of Series C-2 convertible preferred stock 1,100,000 -
Net<br> proceeds from issuance of convertible notes 1,000,000 -
Net<br> proceeds from issuance of common stock and warrants for cash 8,865,000 -
Net<br> proceeds from issuance of common stock 3,014,005 1,385,494
Net<br> proceeds from issuance common stock/ At-the-market offering 219,746 -
Payment<br> to convertible notes principle and accrued interest (1,092,712 ) -
Net<br> cash provided by financing activities 13,506,039 1,885,494
Net<br> increase in cash 134,796 221,605
Cash,<br> beginning of period 524,135 143,098
Cash,<br> end of period $ 658,931 $ 364,703
Supplemental<br> disclosure of non-cash financing and investing activities:
Deemed<br> dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock $ 45,541 $ -
Deemed<br> dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock $ 5,020,883 $ -
Conversion<br> of Series C-1 Preferred Stock $ 20 $ -
Conversion<br> of Series C-1 Preferred Stock $ 6,216,289
Beneficial<br> conversion feature of Series C-2 convertible preferred stock $ 129,412 $ -
Beneficial<br> conversion features associated with convertible notes payable $ 1,000,000 $ 269,231
Conversion<br> of convertible note to common stock $ - $ 211,457

The

accompanying notes are an integral part of these unaudited condensed financial statements.

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BTCS

Inc.

Notes

to Unaudited Condensed Financial Statements

Note1 - Business Organization and Nature of Operations

BTCS Inc. (formerly Bitcoin Shop, Inc.), a Nevada corporation (the “Company”) was incorporated in 2008. In February 2014, the Company entered the business of hosting an online e-commerce marketplace where consumers could purchase merchandise using digital assets, including Bitcoin. The Company is currently focused on blockchain and digital currency ecosystems. In late 2014 we shifted our focus towards our transaction verification service business, also known as bitcoin mining, though in mid-2016 we ceased our mining operation at our North Carolina facility due to capital constraints. In January 2015, the Company began a rebranding campaign using its BTCS.com domain to better reflect its broadened strategy. The Company recently released its new website which included broader information on its strategy.

In the first quarter of 2021, the Company resumed its blockchain infrastructure operations (previously referred to as transaction verification services) with a focus on securing proof-of-stake blockchains and anticipates this will be a core focus going forward. Blockchain infrastructure operations can broadly be defined as earning a reward for securing a blockchain by validating transactions on that blockchain. The Company is developing a proprietary staking-as-a-service platform that would enable clients to stake and delegate supported cryptocurrencies through a non-custodial platform.

The Company is also developing a proprietary digital asset data analytics platform aimed at enabling users to aggregate their portfolio holdings from multiple exchanges and wallets into a single platform to view and analyze performance, risk metrics, and potential tax implications. The internally developed platform utilizes digital asset exchange APIs to read user data and does not allow for the trading of assets.

The Company employs a digital asset treasury strategy with a primary focus on disruptive non-security protocol layer assets such as Bitcoin and Ethereum. The Company receives digital assets from its blockchain infrastructure business and acquires digital assets through open market purchases. The Company is not limiting its assets to a single type of digital asset and may hold a variety of digital assets. The Company will carefully review its purchases of digital securities to avoid violating the 1940 Act and seek to reduce potential liabilities under the federal securities laws.

The market is rapidly evolving and there can be no assurances that we will be competitive with industry participants that have or may have greater resources than us.

Amendmentto Articles of Incorporation

On August 12, 2021, the Company filed a Certificate of Change with the Nevada Secretary of State to affect a 1-for-10 reverse split of the Company’s class of common stock (the “Reverse Split”). The Certificate of Change became effective on August 13, 2021.

No fractional shares were issued in connection with the Reverse Split and all such fractional interests were rounded up to the nearest whole number of shares of common stock. The Company now has 97,500,000 shares of common stock authorized. Numbers of shares of the Company’s preferred stock were not affected by the Reverse Split; however, the conversion ratios have been adjusted to reflect the Reverse Split. The financial statements have been retroactively restated to reflect the Reverse Split.

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Note2 - Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions to Form 10-Q and the rules and regulations of the SEC. Accordingly, since they are interim statements, the accompanying unaudited condensed financial statements do not include all of the information and notes required by GAAP for annual financial statements, but in the opinion of the Company’s management, reflect all adjustments consisting of normal, recurring adjustments, that are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The unaudited condensed financial statements and notes should be read in conjunction with the financial statements and notes for the year ended December 31, 2020.

Note3 - Liquidity, Financial Condition and Management’s Plans

The Company has commenced its planned operations but has limited operating activities to date. The Company has financed its operations since inception using proceeds received from investments from third-party investors as well as from officers and directors of the Company. The Company has plans to continue to raise proceeds from sale of common stock and issuance of debt to fund operations as needed for the next twelve months.

During

the nine months ended September 30, 2021, the Company received net proceeds of approximately $14.6

million from the issuance of: Series C-2 convertible

preferred stock, a convertible note, common stock and warrants issued pursuant to the Purchase agreement, common stock issued pursuant to the Equity Line Purchase Agreement, the cash exercise of warrants, and the proceeds from the common stock sold pursuant to the ATM Agreement. On September 30, 2021, the fair market value of the Company’s liquid digital assets was approximately $6.2

million and the Company had approximately

$0.66 million of cash. As such, the Company has adequate cash to fund operations for at least the next twelve months.

Note4 - Summary of Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2020 Annual Report.

ValidatorRevenue

The Company runs its own digital asset validator nodes and has entered into network-based smart contracts. Through these contracts, the Company provides cryptocurrency to stake a node for the purpose of validating transactions and adding blocks to a respective blockchain network. The term of a smart contract can vary based on the rules of the respective blockchain and typically last a few weeks to months after it is cancelled by the operator and requires that the cryptocurrency staked remain locked up during the duration of the smart contract. In exchange for validating transactions and staking the cryptocurrency, the Company is entitled to all of the fixed cryptocurrency award for running the Company’s own node and successfully processing, validating and/or adding a block to the blockchain.

The provision of validating blockchain transactions is an output of the Company’s ordinary activities. Each separate block creation or validation under a smart contract with a network represents a performance obligation. The transaction consideration the Company receives – the fixed cryptocurrency awards – is a non-cash consideration, which the Company measures at fair value on the date received. The fair value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency on the date of receipt. The satisfaction of the performance obligation for processing and validating blockchain transactions occurs at a point in time when confirmation is received from the network indicating that the validation is complete, and the awards are available for transfer. At that point, revenue is recognized.

Costof Revenue

The Company’s cost of revenue consists primarily of direct production costs related to the operations of validating transactions on the network, rent and utilities for locations housing server nodes to the extent applicable, hosting costs if cloud-based servers are utilized and fees (including stock-based fees) paid to 3rd parties to assist in the software maintenance and operations of its nodes.

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DigitalAssets Translations and Impairments

Digital assets are included in the balance sheets as either current assets or other assets if they are staked and locked up for over one year. Digital assets are recorded at cost less impairment.

An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.

Realized gain (loss) on sale of digital assets are included in other income (expense) in the statements of operations. We assign costs to transactions on a first-in, first-out basis.

The Company assesses impairment of digital assets quarterly if the fair value of digital assets is less than its cost basis. The Company recognizes impairment losses on digital assets caused by decreases in fair value using the lowest U.S. dollar spot price of the related digital asset as of each impairment date. Such impairment in the value of digital assets are recorded as a component of costs and expenses in our statements of operations.

InternallyDeveloped Software

Internally developed software consisting of the core technology of the Company’s digital asset data analytics platform which is being designed to allow user to aggregate and analyze data from digital asset exchanges. For internally developed software, the Company uses both its own employees as well as the services of external vendors and independent contractors. The Company accounts for computer software used in the business in accordance with ASC 985-20 and ASC 350.

ASC 985-20, Software-Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, requires that software development costs incurred in conjunction with product development be charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, software development costs must be capitalized and reported at the lower of unamortized cost or net realizable value of the related product. Some companies use a “tested working model” approach to establishing technological feasibility (i.e., beta version). Under this approach, software under development will pass the technological feasibility milestone when the Company has completed a version that contains essentially all the functionality and features of the final version and has tested the version to ensure that it works as expected.

ASC 350, Intangibles-Goodwill and Other, requires computer software costs associated with internal use software to be charged to operations as incurred until certain capitalization criteria are met. Costs incurred during the preliminary project stage and the post-implementation stages are expensed as incurred. Certain qualifying costs incurred during the application development stage are capitalized as property, equipment, and software. These costs generally consist of internal labor during configuration, coding, and testing activities. Capitalization begins when (i) the preliminary project stage is complete, (ii) management with the relevant authority authorizes and commits to the funding of the software project, and (iii) it is probable both that the project will be completed and that the software will be used to perform the function intended.

Useof Estimates

The accompanying unaudited condensed financial statements have been prepared in conformity with GAAP. This requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. The Company’s significant estimates and assumptions include the recoverability and useful lives of intangible assets, stock-based compensation, the valuation of derivative liabilities, the valuation of convertible preferred stock and the valuation allowance related to the Company’s deferred tax assets. Certain of the Company’s estimates, including the carrying amount of the intangible assets, if any, could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates and assumptions.

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Accountingfor Warrants

The Company accounts for the issuance of common stock purchase warrants issued in connection with the equity offerings in accordance with the provisions of ASC 815, Derivatives and Hedging (“ASC 815”). The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). In addition, Under ASC 815, registered common stock warrants that require the issuance of registered shares upon exercise and do not expressly preclude an implied right to cash settlement are accounted for as derivative liabilities. The Company classifies these derivative warrant liabilities on the balance sheet as a current liability.

The Company assessed the classification of common stock purchase warrants as of the date of each offering and determined that such instruments originally met the criteria for equity classification; however, as a result of the Company no longer being in control of whether the warrants may be cash settled, the instruments no longer qualify for equity classification. Accordingly, the Company classified the warrants as a liability at their fair value and adjusts the instruments to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until the warrants are exercised or expired, and any change in fair value is recognized as “change in the fair value of warrant liabilities” in the statements of operations. The fair value of the warrants has been estimated using a Black-Scholes valuation model (see Note 6).

Stock-basedCompensation

The Company accounts for share-based payment awards exchanged for services at the estimated grant date fair value of the award. Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. These options often vest over a one-year period.

The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

ExpectedTerm - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term.

ExpectedVolatility - The Company computes stock price volatility over expected terms based on its historical common stock trading prices.

Risk-FreeInterest Rate - The Company bases the risk-free interest rate on the implied yield available on U. S. Treasury zero-coupon issues with an equivalent remaining term.

ExpectedDividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.

Effective January 1, 2017, the Company elected to account for forfeited awards as they occur, as permitted by ASU 2016-09. Ultimately, the actual expenses recognized over the vesting period will be for those shares that vested. Prior to making this election, the Company estimated a forfeiture rate for awards at 0%, as the Company did not have a significant history of forfeitures.

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ConvertiblePreferred Stock

The Company applies the accounting standards for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock. Preferred stock subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified as stockholders’ equity. The Company evaluated the classification of its convertible preferred stock and determined that such instruments meet the criteria for equity classification.

The Company has also evaluated its convertible preferred stock in accordance with the provisions of ASC 815, Derivatives and Hedging, including consideration of embedded derivatives requiring bifurcation. The issuance of the convertible preferred stock could generate a beneficial conversion feature, which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date.

BeneficialConversion Feature of Convertible Notes Payable

The Company accounts for convertible notes payable in accordance with the guidelines established by the FASB Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and Other Options. The beneficial conversion feature of a convertible note is normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below market value or in-the-money when issued. The Company records a beneficial conversion feature related to the issuance of a convertible note when issued.

The discounted face value is then used to measure the effective conversion price of the note. The effective conversion price and the market price of the Company’s common stock are used to calculate the intrinsic value of the conversion feature. The intrinsic value is recorded in the financial statements as a debt discount from the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense.

NetLoss per Share

Basic loss per share is computed by dividing the net income or loss applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the Company’s convertible preferred stock, convertible notes and warrants. Diluted loss per share excludes the shares issuable upon the conversion of preferred stock, notes and warrants from the calculation of net loss per share if their effect would be anti-dilutive.

The following financial instruments were not included in the diluted loss per share calculation as of September 30, 2021 and 2020 because their effect was anti-dilutive:

Schedule of Earnings Per Share Anti-diluted

As<br> of September 30,
2021 2020
Warrants<br> to purchase common stock 962,823 50,323
Series<br> C-1 Convertible Preferred stock - 19,609
Convertible<br> notes 285,429 466,201
Total 1,248,252 536,133 
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RecentAccounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its financial statements and related disclosures.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivativesand Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in anEntity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of this standard on its financial statements and related disclosures.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

Note5 - Note Payable

2020December Promissory Note (Retired)

On December 16, 2020, the Company issued Cavalry Fund I LP (“Cavalry”) a $1,000,000 promissory note (the “2020 December Promissory Note”) in consideration for $1,000,000. The 2020 December Promissory Note is (i) due on October 16, 2021, (ii) convertible at a 35% discount to the closing price of the Company’s common stock on the date before exercise with a floor price of $0.40 per share and (iii) shall bear interest at 12% per annum (payable at maturity). Subject to certain limitations, the Company may force conversion of the 2020 December Promissory Note. In connection with issuance of the 2020 December Promissory Note, the Company issued a Series C warrant to purchase 200,000 shares of the Company’s common stock at an exercise price of $2.00, the Series C warrants were exercised for cash on January 15, 2021, resulting in proceeds of $400,000 to the Company.

During

the nine months ended September 30, 2021, the Company recorded approximately $868,000 amortization of debt discount related to the 2020 December Promissory Note.

During

the nine months ended September 30, 2021, the Company recorded interest expense of approximately $88,000 for the 2020 December Promissory Note.

On

September 24, 2021, the Company paid off in full the 2020 December Promissory Note. Repayment to Cavalry consisted of $1,000,000 in principal and $92,712 in accrued interest, for a total of $1,092,712. Cavalry confirmed the 2020 December Promissory Note had been fully paid and the Company has no further obligations with respect to the note.

2021January Promissory Note

On January 15, 2021, the Company issued Calvary a $1,000,000 promissory note (the “2021 Promissory Note”) in consideration for $1,000,000. The 2021 Promissory Note is (i) due on November 15, 2021, (ii) convertible at a 35% discount to the closing price of the Company’s common stock on the date before exercise with a floor price of $7.50 per share and (iii) shall bear interest at 12% per annum (payable at maturity). Subject to certain limitations, the Company may force conversion of the 2021 Promissory Note.

In

connection with issuance of the 2021 Promissory Note, the Company issued a Series D warrant to purchase 200,000 shares of the Company’s common stock at an exercise price of $21.60 per share (the “Series D Warrant”). Detachable warrants issued in a bundled transaction with debt and equity offerings are accounted for on a separate basis. The allocation of the issuance proceeds to the base instrument and to the warrants depends on the accounting classification of the separate warrant as equity or liability. If the warrants are classified as equity, then the allocation is made based upon the relative fair values of the base instrument and the warrants following the guidance in ASC 470-20-25-2. In this case, the Series D Warrant is equity-classified, with the fair value at issuance was approximately $3,580,000. As such, the Company recognized a beneficial conversion feature, resulting in a discount to the 2021 Promissory Note of approximately $782,000 with a corresponding credit to additional paid-in capital.

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In

addition, the 2021 Promissory Note does not contain any embedded features that require bifurcation pursuant to ASC 815-15. At the issuance date, the 2021 Promissory Note was convertible into 70,572 shares of common stock at $14.10 per share, but the Company’s fair value of underlying common stock was $21.8 per share. As such, the Company recognized a beneficial conversion feature, resulting in an additional discount to the 2021 Promissory Note of approximately $218,000 with a corresponding credit to additional paid-in capital.

During

the nine months ended September 30, 2021, the Company recorded approximately $848,000 amortization of debt discount related to the 2021 Promissory Note.

During

the nine months ended September 30, 2021, the Company recorded interest expense of approximately $85,000 for the 2021 Promissory Note. As of September 30, 2021, the principal balance of the 2021 Promissory Note was $1 million and accrued interest on the note payable amounted to approximately $85,000.

Note6 - Fair Value of Financial Assets and Liabilities

Financial instruments, including cash and cash equivalents, accounts and other receivables, accounts payable and accrued liabilities are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. The Company measures the fair value of financial assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

The Company uses three levels of inputs that may be used to measure fair value:

Level 1 - quoted prices in active markets for identical assets or liabilities

Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 - inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

The following table presents the Company’s assets and liabilities that are measured at fair value at September 30, 2021 and December 31, 2020:

Schedule of Fair Value of Assets and Liabilities Valued on Recurring Basis

Fair<br> value measured at September 30, 2021
Total<br> at September 30, Quoted<br> prices in active markets Significant<br> other observable inputs Significant<br> unobservable inputs
2021 (Level<br> 1) (Level<br> 2) (Level<br> 3)
Liabilities
Warrant<br> Liabilities $ 3,705,000 $ - $ - $ 3,705,000
Fair value measured at December 31, 2020
--- --- --- --- --- --- --- --- ---
Total at December 31, Quoted prices in active markets Significant other observable inputs Significant unobservable inputs
2020 (Level 1) (Level 2) (Level 3)
Liabilities
Warrant Liabilities $ - $ - $ - $ - 
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Level3 Valuation Techniques

Level 3 financial liabilities consist of the warrant liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.

A significant decrease in the volatility or a significant decrease in the Company’s stock price, in isolation, would result in a significantly lower fair value measurement. Changes in the values of the warrant liabilities are recorded in “change in fair value of warrant liabilities” in the Company’s statements of operations.

On

March 2, 2021, the Company entered into a securities purchase agreement (the “Offering”) with certain purchasers pursuant to which the Company agreed to sell an aggregate of (i) 950,000 shares of common stock, and (ii) common stock warrants (the “Warrants”) to purchase up to 712,500 shares of common stock for gross proceeds of $9.5 million in a private placement. The closing of the Offering occurred on March 4, 2021.

The Warrants require, at the option of the holder, a net-cash settlement following certain fundamental transactions (as defined in the Warrants) at the Company. At the time of issuance, the Company maintained control of certain fundamental transactions and as such the Warrants were initially classified in equity. As of September 30, 2021, the Company no longer maintained control of certain fundamental transactions as they did not control a majority of shareholder votes. As such, the Company may be required to cash settle the Warrants if a fundamental transaction occurs which is outside the Company’s control. Accordingly, the Warrants are classified as liabilities. The Warrants have been recorded at their fair value using the Black-Scholes valuation model, and will be recorded at their respective fair value at each subsequent balance sheet date. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as volatility.

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The Warrants require the issuance of registered shares upon exercise, do not expressly preclude an implied right to cash settlement and are therefore accounted for as derivative liabilities. The Company classifies these derivative warrant liabilities on the balance sheet as a current liability.

A summary of quantitative information with respect to the valuation methodology and significant unobservable inputs used for the Company’s warrant liabilities that are categorized within Level 3 of the fair value hierarchy at the date of issuance and, as of September 30, 2021, is as follows:

Summary of Valuation Methodology and Significant Unobservable Inputs Warrant Liabilities

September<br> 14, 2021 September<br> 30, 2021
Risk-free<br> rate of interest 0.79 % 0.98 %
Expected<br> volatility 192.2 % 169.4 %
Expected<br> life (in years) 4.47 4.43
Expected<br> dividend yield - -

The risk-free interest rate was based on rates established by the Federal Reserve Bank. For the Warrants, the Company estimates expected volatility giving primary consideration to the historical volatility of its common stock. The general expected volatility is based on the standard deviation of the Company’s underlying stock price’s daily logarithmic returns. The expected life of the warrants was determined by the expiration date of the warrants. The expected dividend yield was based on the fact that the Company has not historically paid dividends on its common stock and does not expect to pay dividends on its common stock in the future.

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities for the nine months ended September 30, 2021 and 2020, that are measured at fair value on a recurring basis:

Schedule of Changes in Fair Value and Other Adjustments of Warrants

Fair<br> Value of Level 3 financial liabilities
September<br> 30, September<br> 30,
2021 2010
Beginning<br> balance $ - $ -
Warrant<br> liabilities classification 5,771,250 -
Fair<br> value adjustment of warrant liabilities (2,066,250 ) -
Ending<br> balance $ 3,705,000 $ -

Note7 - Stockholders’ Equity

Preferred Stock

The

Company is authorized to issue up to 2,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, and shall have such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as shall be determined at the time of issuance by the Company’s board of directors without further action by the Company’s shareholders.

On

January 1, 2021, members of the Company’s management subscribed for 110,000 shares of the Company’s Series C-2 Convertible Preferred Stock (the “Series C-2”), for a total of $1,100,000 at $10.00 per Share of Series C-2. The Company obtained an independent valuation of the Series C-2 and $179,277 of compensation expense was recognized, representing the difference between the fair value and the proceeds received.

The

Series C-2 is not mandatorily redeemable and is not unconditionally redeemable. The Series C-2 is callable by the Company. The Certificate of Designation required that the Company, within 180 days of the Initial Issuance Date, call a special meeting of stockholders seeking shareholder ratification of the issuance of the Series C-2. If the ratification of the issuance was not approved prior to the twelve-month anniversary of the Initial Issuance Date (the “Vote Deadline”), the Series C-2 would be redeemed at a price equal to 107% of (i) the Stated Value per share plus (ii) all unpaid dividends thereon. Provided; further, if the Company had filed a proxy with the SEC prior to the Vote Deadline but was unable to conduct a vote prior to the Vote Deadline then the Vote Deadline would have been extended until such time as the vote was conducted. The Series C-2 holders were not entitled to vote on the ratification. The call provision would have been automatically triggered if the ratification of the issuance was not approved in a special meeting of stockholders prior to the twelve-month anniversary of the Initial Issuance Date. The Company held the meeting within the required period and the Series C-2 is no longer redeemable.

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Based on the guidance in ASC 480-10-S99 (“ASR 268”), a redeemable equity instrument is not to be included in permanent equity. Rather, it should be reported between long-term debt and stockholders’ equity, without a subtotal that might imply it is a part of stockholders’ equity (i.e., “temporary equity” or “mezzanine capital”). ASR 268 specifies that redeemable stock is any type of equity security, including common or preferred stock, when it has any condition for redemption which is not solely within the control of the issuer without regard to probability.

The Series C-2 Certificate of Designation required the Company to redeem the Series C-2 if stockholder approval was not received by the Vote Deadline. Stockholder approval was not considered to be “solely within the Company’s control.” Stockholder approval occurred on March 31, 2021, at which time the Series C-2 was no longer callable by the Company. As such, the Series C-2 was initially classified in temporary equity under ASR 268 and was reclassified to permanent equity upon stockholder approval on March 31, 2021.

The holders of Series C-2 shall be entitled to receive dividends or distributions on each share of Series C-2 on an “as-converted basis” into common stock when and if dividends are declared on the common stock by the Board of Directors. Dividends shall be paid in cash or property, as determined by the Board of Directors.

At

any time or times on or after the two-year anniversary of the Initial Issuance Date, each Holder shall be entitled to convert any portion of the outstanding Series C-2 held by such Holder into validly issued, fully-paid and non-assessable shares of Common at the Conversion Rate. The Conversion Amount is subject to adjustment for certain capitalization and Anti-Dilution Events. The Series C-2 will automatically be converted at the earlier of: (i) the four-year anniversary of the Initial Issuance Date, and (ii) simultaneously with the Company’s common stock being listed on a national securities exchange. The Conversion Rate is based upon the Conversion Price of $1.70 which resulted in a beneficial conversion feature at the time of issuance. As such, the Company recognized a beneficial conversion amount of $129,412 as a reduction to the carrying amount of the convertible instrument. This discount will be amortized as a dividend over two years, the earliest conversion date. Upon the conversion of Series C-2 into common stock on September 14, 2021, the total amortization of the beneficial conversion feature is $45,541 and the remaining discount is netted against additional paid in capital.

The Conversion Amount may be adjusted due to certain Anti-Dilution Events. If at any time after the Initial Issuance Date, the Company raises capital equal to or in excess of $5 million by issuing common stock or Common Stock Equivalents then the Anti-Dilution Amount per share of Series C-2 shall be the product of: (i) 0.0000004, and (ii) the aggregate amount of all capital raised by the Company after the Initial Issuance Date (the “Capital Raised”). Provided; further, for the determination of the Anti-Dilution Amount, the amount of Capital Raised shall be limited to $13 million, regardless of how much capital the Company raises. In the event capital is raised simultaneous with a listing on a national securities exchange and the automatic conversion of the Series C-2 then such funds shall be included in the Capital Raised for the purpose of determining the Anti-Dilution Amount. As of September 30, 2021, over $13 million of capital was raised and the adjustment to the Conversion Amount was fully triggered. The Company recognized the effect of the down-round protection when capital raises occur as the difference between: (1) the financial instrument’s fair value (without the down round feature) using the pre-trigger exercise price, and (2) the financial instrument’s fair value (without the down round feature) using the reduced exercise price. The value of the effect of the down round feature of $5,020,883 was treated as a dividend and a reduction to income available to common shareholders in the basic EPS calculation. On September 14, 2021, the Series C-2 was converted into 4,011,766 shares of common stock.

Common Stock

ReverseStock Split

On August 25, 2021, the Company issued 14,477 shares of common stock in connection with the 1-for-10 Reverse Split resulting from the rounding up of fractional shares of common stock to the whole shares of common Stock.

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Issuanceof Shares Pursuant to Equity Line of Credit Purchase Agreement

On

January 28, 2021, the Company filed a registration statement on Form S-1 seeking to register 400,000 shares (the “Registration Statement”) pursuant to the equity line of credit purchase agreement with Cavalry (the “Equity Line Purchase Agreement”). The Registration Statement was declared effective by the SEC on February 1, 2021.

During

the nine months ended September 30, 2021, the Company issued approximately 321,740 shares of common stock (inclusive of approximately 17,590 pro-rata commitment shares) under the Registration Statement resulting in aggregate net proceeds of $3,014,005 (net of $1,000 in transfer agent fees) and $3,015,005 in gross proceeds at a per share price of approximately $9.37 (inclusive of the pro-rata commitment shares).

Issuanceof Shares Pursuant to Registered Direct Offering

On

March 4, 2021, the Company entered into a securities purchase agreement (the “RD Purchase Agreement”) with institutional investors, pursuant to which the Company sold and issued, in a registered direct offering, 950,000

shares of the Company’s common stock, at

a purchase price per share of $10.00 and immediately exercisable five-year

warrants to purchase 712,500

shares of common stock at an exercise price of

$11.50

per share. Gross proceeds from the Offering was

$9.5

million. Net proceeds were $8.9

million after deducting placement agent fees and other offering expenses paid for by the Company.

The RD Purchase Agreement contains representations, warranties, indemnifications and other provisions customary for transactions of this nature. Pursuant to the RD Purchase Agreement, subject to limited exceptions, each of the Company and its officers and directors agreed not to, and not to publicly disclose the intention to, sell or otherwise dispose of, any shares of common stock or any securities convertible into, or exchangeable or exercisable for, common stock, for a period ending 60 days after the date of the prospectus supplement for this offering.

The

Company also entered into a placement agent agreement with A.G.P./Alliance Global Partners (“AGP”), pursuant to which AGP agreed to serve as the exclusive placement agent for the Company in connection with that offering. The Company paid AGP a cash placement fee equal to 7.0% of the aggregate gross proceeds raised in the offering (reduced to 3.5% for certain investors) and reimbursed the placement agent for its legal fees and other accountable expenses in the amount of $40,000.

At The Market Offering Agreement

On

September 14, 2021, the Company entered into an At-The-Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC, as agent (“H.C. Wainwright”), pursuant to which the Company may offer and sell, from time-to-time through H.C. Wainwright, shares of the Company’s common stock having an aggregate offering price of up to $98,767,500 million (the “Shares”). The Company will pay H.C. Wainwright a commission rate equal to 3.0% of the aggregate gross proceeds from each sale of Shares.

During

the nine months ended September 30, 2021, the Company sold a total of 41,290 shares of common stock under the ATM Agreement for aggregate total gross proceeds of approximately $279,000 at an average selling price of $6.76 per share, resulting in net proceeds of approximately $219,746 after deducting commissions and other transaction costs.

Issuanceof Shares Pursuant to Cash Exercise of Series C Warrants

On

January 15, 2021, the Company issued 200,000 shares of the Company’s common stock to Cavalry upon the exercise of all their Series C warrants and payment of the exercise amount of $400,000. Cavalry and the Company entered into an agreement whereby Cavalry would exercise early for cash provided that the Company register the underlying shares of common stock within 30 days of exercise.

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Issuanceof Shares Due to Conversion of Series C-1 Preferred Stock

On

March 30, 2021, the Company issued 19,609 shares of common stock upon the conversion of 29,414 shares of Series C-1 Convertible Preferred stock. After this conversion, there were no Series C-1 shares outstanding so the Company filed a Certificate of Withdrawal with the Secretary of State of the State of Nevada. The Certificate of Withdrawal eliminated from the Articles of Incorporation of the Company all matters set forth in the Series C-1.

Issuanceof Shares Due to Conversion of Series C-2 Preferred Stock

On

September 14, 2021, the Series C-2 was converted into 4,011,766 shares of common stock. Please refer to the discussion above.

Issuanceof Restricted Stock to Service Providers

During

the nine months ended September 30, 2021, the Company issued to four service providers a total of approximately 52,800 shares of restricted common stock, representing a total fair value of $0.6 million.

2021 Equity Incentive Plan

The

Company’s 2021 Equity Incentive Plan (the “2021 Plan”) was effective on January 1, 2021 and approved by shareholders on March 31, 2021. The Company has reserved 2,000,000 shares of common stock for issuance pursuant to the 2021 Plan.

Options

On January 1, 2021, the Board of Directors of the Company approved the grant of 1.2 million stock options with an exercise price of $1.90 under the Company’s 2021 Plan to Messrs. David Garrity a director, and Charles Allen and Michal Handerhan, executive officers and directors of the Company. Effective as of January 1, 2021, the Company and each optionee executed Stock Option Agreements evidencing the option grants. While stockholder approval (or ratification) of the grants was not required (under either the Stock Option Agreements or by the resolutions of the Board of Directors approving such grants), the Board of Directors voluntarily caused the Company to seek shareholder ratification of the grants to limit any potential exposure to breach of fiduciary duty claims. As a result, based on the guidance in ASC 718, the date the stockholders ratified the grants (March 31, 2021) is the deemed grant date solely with respect to GAAP for those stock options. Of the stock options: (i) 480,000 options will vest on January 1, 2022 and (ii) the remaining options vested (prior to March 31, 2021) based upon the Company’s stock price meeting certain milestones.

On April 1, 2021, the Company granted 35,000 stock options with an exercise price of $10.30 to Charles B. Lee and Carol Van Cleef, directors of the Company. Of the stock options: (i) 14,000 options will vest on April 1, 2022 and (ii) the remaining 21,000 options vest based upon the Company’s stock price meeting certain milestones.

The

Company records compensation expense for the 14,000 options granted on April 1, 2021 based on the estimated fair value of the options on the deemed grant date using the Black-Scholes formula, utilizing assumptions laid out in the table below. The Company uses historical data to determine exercise behavior, volatility and forfeiture rate of the options. For the 21,000 options granted on April 1, 2021 that vest based upon the Company’s stock price meeting certain milestones, the Company records compensation expense based on the estimated fair value of the options using a Monte-Carlo simulation.

The following weighted-average assumptions were used to estimate the fair value of options granted during the nine months ended 2021 and 2020 for both the Black-Scholes formula and the Monte-Carlo simulation:

Summary of Weighted-average Assumptions Used to Estimate Fair Value

For the nine months ended<br> <br>September 30,
2021 2020
Exercise<br> price $ 2.1 -
Term<br> (years) 2.25-3.05 -
Expected<br> stock price volatility 185.9 % -
Risk-free<br> rate of interest 0.34 % - 
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ExpectedVolatility: The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the option.

Risk-FreeInterest Rate: The risk-free interest rate is based on the U.S. treasury zero-coupon yield curve in effect at the time of grant for the expected term of the option.

ExpectedTerm: The Company’s expected term represents the weighted-average period that the Company’s stock options are expected to be outstanding. The expected term is based on the expected time to post-vesting exercise of options by employees. The Company uses historical exercise patterns of previously granted options to derive employee behavioral patterns used to forecast expected exercise patterns.

For awards vesting upon the achievement of a service condition, compensation cost measured on the grant date will be recognized on a straight-line basis over the vesting period. For awards vesting upon the achievement of the market conditions which were met at the date of grant, compensation cost measured on the date of grant was immediately recognized. For awards vesting upon the achievement of the market conditions which were not met at the date of grant, compensation cost measured on the grant date will be recognized on a straight-line basis over the vesting period based on estimation using a Monte-Carlo simulation.

A summary of options activity under the Company’s stock option plan for nine months ended September 30, 2021 is presented below:

Summary of Option Activity

Number<br> of Shares Weighted<br> Average Exercise Price Total<br> Intrinsic Value Weighted<br> Average Remaining Contractual Life (in years)
Outstanding<br> as of December 31, 2020 - $ - $ - -
Employee<br> options granted 1,235,000 2.14 4,188,000 4.5
Outstanding<br> as of September 30, 2021 1,235,000 $ 2.14 $ 4,188,000 4.5
Options<br> vested and exercisable 720,000 $ 1.90 $ 2,512,800 4.5

RSUs

On January 1, 2021, the Board of Directors of the Company approved 275,000 restricted stock unit grants under the Company’s 2021 Equity Incentive Plan to Messrs. David Garrity a director, and Charles Allen and Michal Handerhan, executive officers and directors of the Company. Effective as of January 1, 2021, the Company and each recipient executed a Restricted Stock Agreement evidencing the stock grants. While stockholder approval (or ratification) of the grants was not required (under either the Restricted Stock Agreements or by the resolutions of the Board of Directors approving such grants), the Board of Directors voluntarily caused the Company to seek shareholder ratification of the grants to limit any potential exposure to breach of fiduciary duty claims. As a result, based on the guidance in ASC 718, the date the stockholders ratified the grants (March 31, 2021) is the deemed grant date solely with respect to GAAP for those restricted stock grants. The restricted stock units vest when the Company lists its common stock on a national securities exchange. As of September 30, 2021, all 275,000 restricted stock units vested with a total fair value of approximately $2.8 million. The cost of stock-based compensation for restricted stock units is measured based on the closing fair market value of the Company’s common stock at the deemed grant date and was recorded on the September 14, 2021 vesting date when the listing occurred.

On

April 1, 2021, the Company granted a total of 15,000

restricted stock units to two non-employee

directors of the Company. The restricted stock units vest when the Company lists its common stock on a national securities exchange. As of September 30, 2021, all 15,000

restricted stock units vested with a total fair

value of approximately $0.2 million. The cost of stock-based compensation for restricted stock units is measured based on the closing fair market value of the Company’s common stock at the deemed grant date and was recorded on the September 14, 2021 vesting date when the listing occurred.

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On

June 28, 2021, the Company granted 50,781 restricted stock units to the Company’s then Chief Financial Officer.

The

restricted stock units were to vest over a five-year period as follows: 20% of the 50,781 restricted stock units were to vest on the one-year anniversary of the grant date, and the remaining 80% were to vest monthly over the following four years with vesting occurring on the last day of each respective month.

The

grant date fair value of restricted stock units was approximately $0.3 million.

A summary of the Company’s restricted stock units granted under the 2021 Plan during the nine months ended September 30, 2021 are as follows:

Summary of Restricted Stock

Number of Restricted Stock Units Weighted Average Grant Day Fair Value
Nonvested at December 31, 2020 - $ -
Granted 340,781 9.72
Vested (290,000 ) 10.29
Nonvested at September 30, 2021 50,781 $ 6.42

Stock-basedCompensation

Stock-based

compensation expense for the nine months ended September 30, 2021 was approximately $13.8 million, comprised of $203,000 restricted common stock issued to service providers not pursuant to the 2021 Plan and approximately $10.3 million in connection with options issued pursuant to the 2021 Plan. Unrecognized compensation expense for the Company was $2.0 million on September 30, 2021. Stock-based compensation expense is recorded as a part of selling, general and administrative expenses, compensation expenses and cost of revenues.

Stock-based compensation expense for the three and nine months ended September 30, 2021 and 2020 was as follows:

Schedule of Stock-based Compensation Expense

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Employee stock option awards $ 1,638,516 $ - $ 10,298,844 $ -
Employee restricted stock units awards 3,027,665 - 3,029,040 -
Non-employee restricted stock awards 75,000 - 237,806 -
Series C-2 allocation - - 179,277 -
$ 4,741,181 $ - $ 13,744,967 $ -

Note8 - Employee Benefit Plans

The

Company maintains defined contribution benefit plans under Section 401(k) of the Internal Revenue Code covering substantially all qualified employees of the Company (the “401(k) Plan”). Under the 401(k) Plan, the Company may make discretionary contributions of up to 100% of employee contributions. During the nine months ended September 30, 2021, the Company made contributions to the 401(k) Plan of $39,000.

Note9 - Subsequent Events

From

October 1, 2021 to November 4, 2021, the Company sold a total of 172,547 shares of common stock under the ATM Agreement for aggregate total gross proceeds of $1,185,474 at an average selling price of $ $6.87 per share, resulting in net proceeds of approximately $1,147,886 after deducting commissions and other transaction costs.

On October 25, 2021, the Company received a filing acknowledgment with respect to a Certificate of Withdrawal with the Secretary of State of the State of Nevada. The Certificate of Withdrawal, was effective on October 25, 2021, and eliminated from the Articles of Incorporation of the Company all matters set forth in the Company’s Certificate of Designation with respect to the Company’s Series C-2 Preferred Stock that had been previously filed with the Secretary of State of the State of Nevada on January 5, 2021. No shares of the Series C-2 Preferred Stock were issued and outstanding at the time of the filing of the Certificate of Withdrawal, and none will be issued.

On November 4, 2021, Mr. Andrew Lee resigned as the Company’s Chief Financial Officer. In connection with the resignation, Mr. Charles Allen was appointed interim Chief Financial Officer.

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ITEM2 Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Certain statements in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements that involve risks and uncertainties. Words such as may, will, should, would, anticipates, expects, intends, plans, believes, seeks, estimates and similar expressions identify such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements. Factors that could cause or contribute to these differences include those discussed in the Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31, 2020 and our Prospectus filed with the SEC on February 16, 2021 and the Prospectus Supplement dated September 14, 2021.

Overview

BTCS is an early entrant in the digital asset market and one of the first U.S. publicly-traded companies to focus on digital assets and blockchain technologies. Through our blockchain-infrastructure operations, we secure disruptive next-generation blockchains by actively validating transactions. We are then rewarded with digital assets, while this process is similar to bitcoin mining the consensus mechanism is different. Now we are building on the foundation of our pre-established infrastructure with the development of a digital asset data analytics dashboard. The first feature of the dashboard, which is an open beta, allows users to evaluate their digital asset portfolios from multiple exchanges on a single platform. We also are developing and plan to integrate into the platform a staking-as-a-service feature that, once launched, will allow users to participate in asset leveraging through securing blockchain protocols.

BlockchainInfrastructure

Blockchain infrastructure solutions can broadly be defined as earning a reward for securing a blockchain by validating transactions on that blockchain. There are currently two main consensus mechanisms used to secure blockchains: i), proof-of-work (“PoW”), in which nodes dedicate computational resources, and ii) proof-of-stake (“PoS”), in which nodes dedicate financial resources. The intention behind both PoW and PoS is to make it practically infeasible for any single malicious actor to have enough computational power or ownership stake to successfully attack the blockchain.

In the case of PoW, a miner does “work” using energy-consuming computers and is rewarded for this “work” with digital assets. The miner, typically through pools running nodes, validates transactions on the blockchain, essentially converting electricity and computing power into a digital currency reward comprised of transaction fees and newly-minted digital assets. Bitcoin is an example of PoW and is by far the largest and most secure PoW blockchain.

PoS miners, often referred to as validators in PoS systems, actively operate nodes and validate transactions. Validators are required to stake holdings of a digital currency to participate in the consensus algorithm and are rewarded in tokens for aligning behavior with the rules of the algorithm. Bad behavior can be penalized by “slashing” the validator’s holdings and/or rewards. Validators can also be removed from the network for breaking the rules. Ill-intentioned behavior among validators is discouraged, allowing for the blockchain to be properly maintained and secured. Compared to PoW, PoS blockchains require less energy.

Depending on the PoS blockchain protocol, native token holders have the opportunity to leverage their asset holdings by either delegating their rights to a validator (“Delegating”), staking their token holdings in a staking pool (“Staking”), or running their own validator (“Pooling”). With Delegating, token holders indirectly participate by maintaining control of their private keys and delegating their tokens to an existing validator. Therefore, delegating is more akin to assigning voting rights of stock to another person or entity via a power of attorney. With Pooling, an operator and token holder combine tokens in order to improve the constituents’ collective odds of validating new blocks, and typically the operator takes custody of token holders funds i.e. private keys. If chosen for validation, the group is rewarded in tokens. With both Delegating and Pooling, the validator operators earn a fee for providing the technical capabilities of running a node 24/7 that requires regular, active maintenance and industry expertise.

The Company built its foundation on securing PoS blockchains. Apart from Bitcoin and Ethereum, all of the Company’s digital asset holdings are in tokens secured by PoS or similar consensus mechanisms that allow for Delegating and asset leveraging. The Company is currently actively operating validator nodes on Ethereum’s beacon chain, Cardano, Tezos, Avalanche, and Cosmos. Building on that base, the Company plans to expand its PoS operations to secure other disruptive blockchain protocols.

The Company’s plan is that this blockchain infrastructure will form the core for the growth of its platform. The Company utilizes cloud infrastructure to operate and run its validator nodes and does not maintain its own physical assets, but may add this infrastructure in the future. The Company is not currently securing PoW blockchains, such as Bitcoin’s blockchain, but may in the future.

The Company currently holds the following digital assets which are core to its blockchain infrastructure efforts. The table also includes bitcoin which is not core to our infrastructure operations.

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Digital Assets Held at Period End

Digital Assets
Asset 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3
Bitcoin<br> (BTC) 14.9 20.6 20.6 54.3 63.6 66.9 90.0 90.0 90.0
Ethereum<br> (ETH) 584.7 985.0 985.0 2,304.6 2,554.7 2,674.2 7,732.5 7,878.6 7,992.4
Cardano<br> (ADA) 257,757.4 257,757.4
Kusama<br> (KSM) 123.4 374.2
Tezos<br> (XTZ) 14,965.6 24,171.9
Solana<br> (SOL) 4,787.5
Polkadot<br> (DOT) 8,032.1
Terra<br> (Luna) 3,584.2
Cosmos<br> (Atom) 3,072.4
Polygon<br> (Matic) 67,114.1
Avalanche<br> (Avax) 2,024.7
Algorand<br> (Algo) 50,583.9

Fair Market Value of Digital Assets at Period End

Fair<br> Market Value of Digital Assets
Asset 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3
Bitcoin<br> (BTC) $ 123,733 $ 148,406 $ 132,831 $ 496,027 $ 686,580 $ 1,962,572 $ 5,302,695 $ 3,153,675 $ 3,941,180
Ethereum<br> (ETH)* $ 105,175 $ 127,662 $ 131,582 $ 521,552 $ 919,748 $ 1,976,126 $ 14,833,709 $ 17,920,148 $ 23,990,541
Cardano<br> (ADA) $ 356,600 $ 545,028
Kusama<br> (KSM) $ 26,501 $ 123,957
Tezos<br> (XTZ) $ 45,495 $ 146,914
Solana<br> (SOL) $ 675,373
Polkadot<br> (DOT) $ 229,558
Terra<br> (Luna) $ 138,351
Cosmos<br> (Atom) $ 111,252
Polygon<br> (Matic) $ 75,644
Avalanche<br> (Avax) $ 135,191
Algorand<br> (Algo) $ 82,381
Total $ 228,908 $ 276,068 $ 264,413 $ 1,017,579 $ 1,606,328 $ 3,938,698 $ 20,136,404 $ 21,502,420 $ 30,195,370
QoQ<br> Change 21 % -4 % 285 % 58 % 145 % 411 % 7 % 40 %
YoY<br> Change 1,327 % 7,516 % 2,013 % 1,780 %

* Approximately 9 ETH is not staked on Ethereum 2.0’s Beacon Chain.

As of November 4, 2021 the fair market value of our digital assets was approximately $45.7 million.

DigitalAsset Platform

The Company is also developing a proprietary digital asset data analytics dashboard aimed at allowing users to evaluate their crypto portfolio holdings across multiple exchanges and chains on a single platform. The internally-developed dashboard utilizes digital asset exchange APIs to read user data and does not allow for the trading of assets. In addition to portfolio monitoring, we are also working to integrate a full suite of other features including decentralized exchanges, wallets, risk metrics and potentially a way for users to calculate end-of year-reports for tax purposes. We believe that increasing the number of features we offer may create a sticky user experience across multiple, interrelated products.

Additionally, the Company is currently developing and plans to integrate into the platform a proprietary staking-as-a-service feature aimed at allowing users to delegate their tokens on next-generation PoS blockchains to Company operated validator nodes.

DigitalAsset Treasury Strategy

The Company employs a digital asset treasury strategy with a primary focus on disruptive protocol layer assets such as Bitcoin which are not able to be staked (i.e. non-productive). They are distinct from digital assets used as the foundation for our blockchain infrastructure operations previously discussed. The Company’s digital asset treasury holding is comprised of 90 bitcoins as set forth above.

The Company is not limiting its assets to a single type of digital asset and may hold a variety of digital assets. The Company will carefully review its purchases of digital securities to avoid violating the 1940 Act and seek to reduce potential liabilities under the federal securities laws.

The market is rapidly evolving and there can be no assurances that we will be competitive with industry participants that have or may have greater resources than us.

Non-GAAPfinancial measure

In addition to our results determined in accordance with GAAP, we believe Adjusted EBITDA, a non-GAAP measure, is useful in evaluating our operating performance. We believe that Adjusted EBITDA may be helpful to investors because it provides consistency and comparability with past financial performance and the economic realities of our business specifically, but not limited to, the accounting for digital assets. However, Adjusted EBITDA is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Among other non-cash and non-recurring items, Adjusted EBITDA excludes stock-based compensation expense (including stock-based compensation issued to service providers), which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.

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We calculate Adjusted EBITDA as net income (loss), adjusted to exclude, depreciation and amortization, interest expense, change in fair value of warrant liabilities, stock-based compensation expense (including stock-based compensation issued to service providers), and impairment of intangible digital assets.

The following table provides a reconciliation of net income (loss) to Adjusted EBITDA:

Nine<br> Months Ended September 30,
2021 2020
Net<br> income (loss) $ (15,466,585 ) $ (1,795,897 )
Adjusted<br> to exclude the following:
Depreciation<br> and amortization 1,716,744 16,606
Interest<br> expense 172,603 204,882
Change<br> in fair value of warrant liabilities (2,066,250 ) -
Stock-based<br> compensation 13,744,967 -
Impairment<br> of intangible digital assets 3,777,785 162,254
Adjusted<br> EBITDA 1,879,264 (1,412,155 )

Resultsof Operations for the Three Months Ended September 30, 2021 and 2020

The following table reflects our operating results for the three months ended September 30, 2021 and 2020:

Three<br> Months Ended September 30,
2021 2020
Revenues
Validator<br> revenue $ 323,376 $ -
Total<br> revenues 323,376 -
Cost<br> of revenues
Validator<br> expense 71,690 -
Gross<br> profit 251,686 -
Operating<br> expenses:
General<br> and administrative $ 282,558 $ 650,049
Research<br> and development 273,909 -
Compensation<br> and related expenses 4,747,106 228,540
Marketing 7,559 1,365
Total<br> operating expenses 5,311,132 879,954
Other<br> (expenses) income:
Interest<br> expense (58,521 ) (96,068 )
Amortization<br> on debt discount (581,973 ) -
Change<br> in fair value of warrant liabilities 2,066,250 -
Impairment<br> loss on digital assets/currencies (208,647 ) (29,302 )
Total<br> other income (expenses) 1,217,109 (125,370 )
Net<br> loss $ (3,842,337 ) $ (1,005,324 )
Deemed<br> dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock (13,188 ) -
Net<br> loss attributable to common stockholders $ (3,855,525 ) $ (1,005,324 ) 
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Revenue

Revenue for the three months ended September 30, 2021 and 2020 were approximately $0.3 million and $0, respectively. The increase is from our blockchain infrastructure solutions validating revenue.

Costof Revenues

Cost of revenues for the three months ended September 30, 2021 and 2020 were approximately $72,000 and $0, respectively. The increase is from our blockchain infrastructure validating operating costs, including, web service hosting fees, and cash and stock-based compensation related to services provided by vendor.

OperatingExpenses

Operating expenses for the three months ended September 30, 2021 and 2020 were approximately $5.3 million and $0.9 million, respectively. The increase is primarily due to the issuance of 1.2 million options and issuance of 290,000 RSUs, which vested in September, rendering $4.7 million in stock-based compensation expense during the three months ended September 30, 2021.

OtherIncome (Expenses)

Other income (expenses) for the three months ended September 30, 2021 and 2020 was approximately $1.2 million and $(0.1) million, respectively. The decrease in other expenses is primarily due to a $2.0 million change in the fair value of warrant liabilities, partially offset by $0.6 million increase in amortization of debt discount on our convertible notes and $0.2 million increase in impairment loss on digital assets/currencies.

Netloss

Net loss for the three months ended September 30, 2021 and 2020 was approximately $3.8 million and $1.0 million, respectively. The increase is primarily due to an increase of operating expenses, as discussed above.

Netloss attributable to common stockholders

We incurred approximately $13,000 and $0 related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock for the three months ended September 30, 2021 and 2020, respectively.

Digital Asset Rewards Fair Market Value

The fair market value as of September 30, 2021 of earned digital assets rewards for operating validator nodes for the three months ended September 30, 2021 was $343,725.

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Resultsof Operations for the Nine Months Ended September 30, 2021 and 2020

The following table reflects our operating results for the nine months ended September 30, 2021 and 2020:

Nine<br> Months Ended September 30,
2021 2020
Revenues
Validator<br> revenue $ 776,399 $ -
Total<br> revenues 776,399 -
Cost<br> of revenues
Validator<br> expense 145,935 -
Gross<br> profit 630,464 -
Operating<br> expenses:
General<br> and administrative $ 1,149,506 $ 935,118
Research<br> and development 602,178 -
Compensation<br> and related expenses 13,788,556 469,935
Marketing 10,345 5,420
Total<br> operating expenses 15,550,585 1,410,473
Other<br> (expenses) income:
Interest<br> expense (172,603 ) (204,882 )
Amortization<br> on debt discount (1,716,744 ) (16,606 )
Change<br> in fair value of warrant liabilities 2,066,250 -
Impairment<br> loss on digital assets/currencies (3,777,785 ) (162,254 )
Realized<br> gains (loss) on digital asset/currency transactions 3,054,418 (1,682 )
Total<br> other expenses (546,464 ) (385,424 )
Net<br> loss $ (15,466,585 ) $ (1,795,897 )
Deemed<br> dividends related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock (45,541 ) -
Deemed<br> dividends related to recognition of downround adjustment to conversion amount for Series C-2 convertible preferred stock (5,020,883 ) -
Net<br> loss attributable to common stockholders $ (20,533,009 ) $ (1,795,897 )

Revenue

Revenue for the nine months ended September 30, 2021 and 2020 were approximately $0.8 million and $0, respectively. The increase is from our blockchain infrastructure validating revenue.

Costof Revenues

Cost of revenues for the nine months ended September 30, 2021 and 2020 were approximately $146,000 and $0, respectively. The increase is from our blockchain infrastructure validating operating costs, including, web service hosting fees, and cash and stock-based compensation related to services provided by vendor.

OperatingExpenses

Operating expenses for the nine months ended September 30, 2021 and 2020 were approximately $15.6 million and $1.4 million, respectively. The increase is primarily due to the issuance of 1.2 million options, 0.7 million of which vested during the nine months ended September 30, 2021, and issuance of 340,782 RSUs, 290,000 of which vested during the nine months ended September 30, 2021, rendering $13.3 million in stock-based compensation expense.

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OtherExpenses

Other expenses for the nine months ended September 30, 2021 and 2020 was approximately $0.5 million and $0.4 million, respectively. The increase in other expenses is primarily due to a $3.8 million impairment loss on digital assets/currencies and $1.7 million amortization of debt discount and interest expense on our convertible notes, partially offset by $3.1 million in realized gains on digital assets/currency transactions.

Netloss

Net loss for the nine months ended September 30, 2021 and 2020 was approximately $15.5 million and $1.8 million, respectively. The increase is primarily due to increase of operating expenses, as mentioned above.

Netloss attributable to common stockholders

We incurred approximately $46,000 and $0 related to amortization of beneficial conversion feature of Series C-2 convertible preferred stock, and $5.0 million and $0 of deemed dividends related to recognition of anti-dilution adjustment to conversion amount for Series C-2 convertible preferred stock for the nine months ended September 30, 2021 and 2020, respectively.

Digital Asset Rewards Fair Market Value

The fair market value as of September 30, 2021 of earned digital assets rewards for operating validator nodes for the nine months ended September 30, 2021 was $906,339.

Liquidityand Capital Resources

NetCash from Operating Activities

For the nine months ended September 30, 2021, net cash used in operating activities was $3.9 million, which was primarily driven by a $15.5 million net loss and $5.8 million purchase of non-productive digital currencies, a $3.1 million realized gain on non-productive digital assets/currencies transaction; this was partially offset by the sale of non-productive digital assets/currencies of $4.3 million, a $3.8 million impairment loss on digital currencies, and $13.9 million in stock-based compensation.

Net cash used in operating activities was approximately $1.7 million for the nine months ended September 30, 2020. Net cash used in operating activities for the nine months ended September 30, 2020 was primarily driven by a $1.8 million net loss and $0.8 million purchase of digital currencies, and partially offset by an impairment loss on digital currencies of $0.2 million.

NetCash from Investing Activities

For the nine months ended September 30, 2021, net cash used in investing activities was $9.5 million, which stemmed from the $9.5 million purchase of productive digital assets/currencies for our blockchain infrastructure validator operations.

For the nine months ended September 30, 2020, there were no investing activities.

NetCash from Financing Activities

For the nine months ended September 30, 2021, net cash provided by financing activities was approximately $13.5 million, which was primarily driven by approximately $3.0 million in aggregate proceeds from common stock sold under our Equity Line Purchase Agreement, $1.0 million proceeds from the issuance of convertible notes, $8.9 million in net proceeds from the issuance of common stock and warrants for cash, $0.4 million from the cash exercise of Series C Warrants, $1.1 million in proceeds from the issuance of Series C-2 convertible preferred stock, and $0.2 million in proceeds from common stock sold pursuant to the ATM Agreement.

For the nine months ended September 30, 2020, net cash provided by financing activities was approximately $1.9 million, which was primarily driven by approximately $1.4 million in aggregate proceeds from common stock sold under our Equity Line Purchase Agreement, and the issuance of a $500,000 short term convertible note payable in April 2020.

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Liquidity

As of November 4, 2021, the Company had approximately $1.4 million of cash, approximately $97 million available under the ATM Agreement, and the fair market value of the Company’s liquid digital assets was approximately $8.8 million.

On September 30, 2021, we had current assets of $4.3 million, long term assets of $8.8 million, and current liabilities of $4.7 million; working capital amounted to $(0.4) million.

During the nine months ended September 30, 2021, the Company received net proceeds of approximately $14.6 million from the issuance of: Series C-2 convertible preferred stock, a convertible note, common stock and warrants issued pursuant to the Purchase agreement, common stock issued pursuant to the Equity Line Purchase Agreement, the cash exercise of warrants, and the proceeds from the common stock sold pursuant to the ATM Agreement. On September 30, 2021, the fair market value of the Company’s liquid digital assets was approximately $6.2 million. As such, the Company has adequate cash to fund operations for at least the next twelve months.

OffBalance Sheet Transactions

We are not a party to any off-balance sheet transactions. We have no guarantees or obligations other than those which arise out of normal business operations.

RECENT

ACCOUNTING PRONOUNCEMENTS

For information on recent accounting pronouncements, see Note 4 to the Unaudited Condensed Financial Statements.

ITEM3 Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

ITEM4 Controls and Procedures

Evaluationof Disclosure Controls and Procedures

We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2021 to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation, our management has concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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Changesin Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART

II - OTHER INFORMATION

ITEM1 Legal Proceedings

None.

ITEM1A Risk Factors

Not applicable to smaller reporting companies.

ITEM2 Unregistered Sales of Equity Securities and Use of Proceeds

In addition to those unregistered securities previously disclosed in reports filed with the Securities and Exchange Commission, we have issued securities without registration under the Securities Act of 1933 (the “Securities Act”), as described below.

Name or Class of Investor Date of Issuance No. of Securities(1) Reason for Issuance (2)
Investor<br> Relations January<br> 2021 40,000 Investor<br> Relation Services
Consultant February<br> 2021 65,790 Staking<br> Solution Services
Series<br> C-1 Holder March<br> 2021 19,610 Conversion<br> of Series C-1 Preferred Stock
Legal<br> Counsel April<br> 2021 4,855 In lieu of cash payment for legal services
Digital<br> Analytics Consultant April<br> 2021 1,364 Digital<br> Analytics Services
Series<br> C-2 Holders (Related party) September<br> 2021 4,011,766 Conversion<br> of Series C-2 Preferred Stock
(1) Approximate<br> as a result of rounding for Reverse Split. Represents shares of common stock.
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(2) Unless<br> otherwise noted, exempt under Section 4(a)(2) of the Securities Act and Regulation 506(b) thereunder. The securities were issued<br> to accredited investors and there was no general solicitation. The conversion of the Series C-1 was exempt under Section 3(a)(9)<br> of the Securities Act.

ITEM3 Defaults Upon Senior Securities

None.

ITEM4 Mine Safety Disclosures

Not applicable.

ITEM5 Other Information

On November 4, 2021, Mr. Andrew Lee resigned as the Company’s Chief Financial Officer. In connection with the resignation, the Board of Directors appointed Mr. Charles Allen, the Company’s current Chairman of the Board and Chief Executive Officer as the Company’s interim Chief Financial Officer. Mr. Allen will not receive any additional compensation for his interim role as Chief Financial Officer. The Company anticipates hiring a new Chief Financial Officer by December 31, 2021.

Mr. Allen has served as our Chief Executive Officer since February 2014 and as our Chairman of the Board since September 2014. Mr. Allen previously served as the Company’s Chief Financial Officer from February 2014 until June 28, 2021.

ITEM6 Exhibits

The exhibits listed in the accompanying “Exhibit Index” are filed or incorporated by reference as part of this Form 10-Q.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BTCS Inc.
November<br> 9, 2021
By: /s/ Charles Allen
Charles<br> Allen
Chief<br> Executive Officer and Chief Financial Officer
(Principal<br> Executive Officer and Principal Financial Officer) 
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EXHIBIT

INDEX

Incorporated by Reference Filed or Furnished
Exhibit # Exhibit Description Form Date Number Herewith
1.1 At-The-Market Offering Agreement, dated September 14, 2021, 2020, by and between BTCS Inc. and H.C. Wainwright & Co., LLC. 8-K 9/14/21 1.1
3.1 Amended<br> and Restated Articles of Incorporation, as of May 2010 10-K 3/31/11 3.1
3.1(a) Certificate<br> of Amendment to Articles of Incorporation - Increase Authorized Capital 8-K 3/25/13 3.1
3.1(b) Certificate<br> of Amendment to Articles of Incorporation - Increase Authorized Capital 8-K 2/5/14 3.1
3.1(c) Certificate<br> of Amendment to Articles of Incorporation - Reverse Stock Split 8-K 2/16/17 3.1
3.1(d) Certificate<br> of Amendment to Articles of Incorporation - Reverse Stock Split 8-K 4/9/19 3.1
3.1(e) Certificate<br> of Designation for Series A Preferred Stock 8-K 12/9/16 3.1
3.1(f) Certificate<br> of Withdrawal of Certificate of Designation for Series A Preferred Stock 8-K 1/22/21 3.1
3.1(g) Certificate<br> of Designation for Series B Convertible Preferred Stock 8-K 3/15/17 3.1
3.1(h) Certificate<br> of Correction to Series B Convertible Preferred Stock 8-K 3/30/17 3.1
3.1(i) Certificate<br> of Withdrawal of Certificate of Designation for Series B Convertible Preferred Stock 8-K 1/22/21 3.2
3.1(j) Certificate<br> of Designation for Series C-1 Convertible Preferred Stock 8-K 10/10/17 3.1
3.1(k) Amended<br> and Restated Certificate of Designation of Preferences, Rights and Limitations of Series C-1 Convertible Preferred Stock 8-K 12/7/17 3.2
3.1(l) Certificate<br> of Amendment to the Series C-1 Certificate of Designation 8-K 12/3/19 4.1
3.1(m) Certificate<br> of Withdrawal of Certificate of Designation for Series C-1 Preferred Stock 8-K 3/31/21 3.1
3.1(n) Certificate<br> of Designation for Series C-2 Convertible Preferred Stock 8-K 1/4/21 4.1
3.1(o) Certificate<br> of Correction to Series C-2 Convertible Preferred Stock 8-K 1/22/21 3.3
3.1(p) Certificate of Change – Reverse Split 8-K 8/17/21 3.1
3.1(q) Certificate of Withdrawal of Certificate of Designation with respect to the Company’s Series C-2 Preferred Stock. 8-K 10/26/21 3.1
3.2 Bylaws S-1 5/29/08 3.2
4.1 Convertible<br> Note dated as of January 15, 2021 8-K 1/22/21 4.1
4.2 2021<br> Equity Incentive Plan 10-Q 5/13/21 4.2
10.1 Form<br> of Subscription Agreement – Series C-2 Convertible Preferred Stock 8-K 1/4/21 10.1
10.2 Series<br> D Warrant dated January 15, 2021 8-K 1/22/21 10.1
10.3 Form<br> of Securities Purchase Agreement, dated March 2, 2021, by and between the Company, the Purchasers and the Placement Agent+ 8-K 3/4/21 10.1
10.4 Placement<br> Agent Agreement dated March 2, 2021 by and between the Company and A.G.P./Alliance Global Partners 8-K 3/4/21 10.2
10.5 Common<br> Stock Purchase Warrant dated March 2, 2021, by and between the Company and the Purchasers 8-K 3/4/21 10.3
10.6 Employment<br> Agreement - CFO 10-Q 8/6/21 10.6
31.1 Certification<br> of Principal Executive Officer (302) Filed
32.1 Certification<br> of Principal Executive and Principal Financial Officer (906) Furnished**
101.INS Inline<br> XBRL Instance Document Filed
101.SCH Inline<br> XBRL Taxonomy Extension Schema Document Filed
101.CAL Inline<br> XBRL Taxonomy Extension Calculation Linkbase Document Filed
101.DEF Inline<br> XBRL Taxonomy Extension Definition Linkbase Document Filed
101.LAB Inline<br> XBRL Taxonomy Extension Label Linkbase Document Filed
101.PRE Inline<br> XBRL Taxonomy Extension Presentation Linkbase Document Filed
104 Cover<br> Page Interactive Data File (embedded within the Inline XBRL document) Filed
** This<br> exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with<br> Item 601 of Regulation S-K.
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+ Certain<br> schedules, appendices and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy<br> of any omitted schedule and/or exhibit will be furnished supplementally to the Securities and Exchange Commission staff upon request.

Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to BTCS Inc., 9466 Georgia Avenue #124, Silver Spring, MD 20910, Attention: Corporate Secretary.

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Exhibit31.1

CERTIFICATIONOF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL

FINANCIALAND ACCOUNTNG OFFICER

PURSUANTTO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Charles Allen, certify that:

1. I<br> have reviewed this quarterly report on Form 10-Q of BTCS Inc. for the fiscal quarter ended September 30, 2021;
2. Based<br> on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary<br> to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to<br> the period covered by this report;
3. Based<br> on my knowledge, the financial statements, and other financial information included in this interim report, fairly present in all<br> material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented<br> in this report;
4. I<br> am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and<br> 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant<br> and have:
a) Designed<br> such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,<br> to ensure that material information relating to the registrant, is made known to us by others, particularly during the period in<br> which this report is being prepared;
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b) designed<br> such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our<br> supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements<br> for external purposes in accordance with generally accepted accounting principles;
c) evaluated<br> the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about<br> the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
d) disclosed<br> in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s<br> most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal<br> control over financial reporting;
5. I<br> have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors<br> and the registrant’s board of directors:
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a) All<br> significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are<br> reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;<br> and
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b) any<br> fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s<br> internal controls over financial reporting.
Dated:<br> November 9, 2021 By: /s/ Charles Allen
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Charles<br> Allen
Chief<br> Executive Officer and Chief Financial Officer
(Principal<br> Executive Officer and Principal Financial and Accounting Officer)

EXHIBIT32.1

CERTIFICATIONPURSUANT TO 18 USC, SECTION 1350,

ASADOPTED PURSUANT TO SECTION 906

OFTHE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of BTCS Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof, I, Charles Allen, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The quarterly report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) Information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:<br> November 9, 2021 By: /s/ Charles Allen
Charles<br> Allen
Chief<br> Executive Officer and Chief Financial Officer
(Principal<br> Executive Officer and Principal Financial and Accounting Officer)

A signed original of this written statement required by Section 906 has been provided to BTCS Inc. and will be retained by BTCS Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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